Sainsbury's to post first annual profit fall in a decade

LONDON, May 1 (Reuters) - British supermarket Sainsbury's
is expected to post on Wednesday its first annual
profit fall since 2005, hurt by an industry price war that shows
no sign of abating.

Sainsbury's, along with rivals Tesco, Asda
and Morrisons, is grappling with food price deflation
and an intensifying price war launched to stem the flow of
shoppers to discounters Aldi and Lidl.

All are also having to adapt as consumers shop more
frequently and locally, and buy more online.

"We expect the group to confirm more pain is likely in the
year ahead, with further like-for-like (sales) declines the key
challenge," said Jefferies analysts.

Sainsbury's shares have fallen 17 percent over the last
year.

Analysts' on average expect Sainsbury's to report underlying
pretax profit of 659 million pounds ($1.0 billion) for the year
ended March 14, down 17 percent from the 798 million pounds made
in 2013-14.

The fall reflects Sainsbury's announcement in November to
invest an additional 150 million pounds in lower prices, as well
as its absorption of record levels of food deflation in
categories where it trades strongly, such as produce, dairy,
fresh ready meals, meat and fish.

Chief Executive Mike Coupe reckons price reductions financed
by cost cutting, simpler promotions and a focus on product
quality and innovation, as well as expansion of its non-food,
online and convenience business, can combat the discounters'
threat and that of market leader Tesco, which is showing signs
of recovery under new boss Dave Lewis.

However, Coupe still expects supermarket like-for-like sales
in the sector to fall for the next few years and some analysts
are downbeat on the firm's prospects.

"We remain unconvinced that Sainsbury's has the strategy to
overcome its relative scale disadvantage versus Tesco,
deteriorating industry conditions and a challenged balance
sheet," said HSBC's David McCarthy.

Analysts on average forecast a full-year dividend of 12.9
pence a share, down 25 percent.

Coupe is also having to deal with an unwelcome distraction
after it emerged he is contesting a two-year jail sentence
handed down by an Egyptian court in relation to a business
dispute Sainsbury's had 14 years ago. Sainsbury's has described
the sentence as "groundless".

Meanwhile, Morrisons' new CEO David Potts will make his
first public outing on Thursday to announce first-quarter sales.

Barclays and Jefferies analysts expect a 3.3 percent fall in
like-for-like sales. They fell 2.6 percent in the previous
quarter.